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Company law - Advise critically Alice Lau and Benson Cheung, with strategic proposal, how to structure the company and to accommodate the wishes of Alice's parents, Mark and themselves

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Introduction

Assignment Question 2 Alice Lau, a talented designer, and her husband, Benson Cheung, are running a small business engaged in the manufacturing and selling of electronic toys. They are seeking to expand the business and have persuaded Alice's parents to provide funds for expansion. Alice's parents do not wish to participate in the day-to-day running of the business. But they need an income from their investment and they would like to be consulted on major matters of policy and to be able to recover their capital in the future. Alice Lau and Benson Cheung wish to retain control of the business but want to give Alice's brother, Mark Lau, who works for them, greater involvement in the business. Alice and Benson have decided to form a company in which they will own the majority of shares and be directors. Advise critically Alice Lau and Benson Cheung, with strategic proposal, how to structure the company and to accommodate the wishes of Alice's parents, Mark and themselves in the short-run perspective of business development and the practical matters for administering the proposed company after incorporation within the regulatory framework of HKSAR company law. TYPES OF COMPANIES IN HONG KONG Basically, there are three types of business organization in Hong Kong. They are the sole proprietorship, partnership and limited company. However, as stated in the question, Alice and Benson have decided to form a company in which they will own the majority of shares and be directors. ...read more.

Middle

Perpetual succession The corporation exists in its own right. Changes in membership have no effect on the status of the company. It means that it has continuity8. Because the company is a separate legal body, it will continue to exist despite a change in its shareholders, i.e. owners. It is said to have perpetual succession it will continue to exist until it is finally wound up and dissolved, and it is not affected by either the death or the bankruptcy of its shareholders9. Finance is easier to obtain than in sole proprietorship or partnership A company may obtain finance by creating a floating charge, which means that a company can charge all its assets, including its plant, machinery, tools, stocks of goods for sale and money in accounts as security to the bank for a loan granted to the company. However, even those properties have been charged to the bank as security, the company can still buy, sell, replace and otherwise deal with the assets in the normal course of business without getting approval from the bank. Separation of ownership & management A company is said to have the characteristic of separation of ownership and management. It means that the shareholders are the owners of the company, while the directors and secretary are the management personnel of the company. As the shareholders only have a limited liability, they can appoint management and business experts to help them to run the business. ...read more.

Conclusion

"CO" S141D Right to change status In the long run, Alice Lau and Benson Cheung can change the company from private limited company to public limited company if they would like to raise fund from the public. They are not permanently depriving the company of the rights of non-private companies by incorporating it as a private company. This is because a private company can simply be converted into a non-private company later if this becomes necessary to raise funds from public in future. Such conversion merely requires a change to the company's articles of association in the manner described in "CO" S.30 CONCLUSION In short run, incorporation of a private limited company is easier for Alice & Benson to manage, easier to get finance and there is no need to prepare the complex document as in the public companies. This can save cost and time in management. Besides, Alice's parents' requirements can be fulfilled by buying the shares issued by the private company. In long run, it is possible to raise fund from the public by changing the private limited company to public limited company by changing the company's articles of association. 1 http://www.vcpa.com.hk/Formation.htm#book1 2 http://www.vcpa.com.hk/Formation.htm#book1 3 http://www.tklo.com.hk/TDBHK.htm 4 http://www.tklo.com.hk/TDBHK.htm 5 Vanessa Stott, An Introduction to Hong Kong Business law, 3rd Edition, Longman, 2001 6 http://www.tklo.com.hk/TDBHK.htm 7 http://www.sgasc.com/Types%20of%20company%20in%20HK%20%28English%29.htm 8 http://www.sgasc.com/Types%20of%20company%20in%20HK%20%28English%29.htm 9 Vanessa Stott, An Introduction to Hong Kong Business law, 3rd Edition, Longman, 2001 10 Vanessa Stott, An Introduction to Hong Kong Business law, 3rd Edition, Longman, 2001 11 http://www.sgasc.com/Types%20of%20company%20in%20HK%20%28English%29.htm Page 1 of 6 ...read more.

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